HELOC Payment Calculator: Estimate Your Draw & Repayment Costs
Are you planning a home renovation or consolidating debt? A Home Equity Line of Credit (HELOC) offers flexibility, but the 'payment shock' at the end of the draw period can be a surprise. Use our HELOC calculator to see your interest-only payments today and your fully amortized payments tomorrow.
How Does a HELOC Work?
A HELOC is a revolving line of credit that uses your home as collateral. Unlike a standard home equity loan, you only pay interest on what you actually borrow.
The lifecycle of a HELOC consists of two distinct stages:
- The Draw Period (Years 1-10): You can withdraw funds as needed. Most lenders only require interest-only payments during this time, making the monthly cost very low.
- The Repayment Period (Years 11-30): You can no longer take money out. You must pay back the principal plus interest. This is when monthly payments significantly increase.
HELOC vs. Home Equity Loan: Which is Better?
Understanding the difference between HELOC and Home Equity Loans helps you choose the right product:
| Feature | HELOC | Home Equity Loan |
|---|---|---|
| Structure | Revolving (Like a Credit Card) | Lump Sum (One-time payout) |
| Interest Rate | Variable (Adjusts with Prime) | Fixed (Locked in) |
| Payments | Low initial, then higher | Consistent monthly payments |
| Flexibility | High (Borrow only what you need) | Low (Fixed amount) |
| Best For | Ongoing projects, variable needs | One-time expenses, fixed costs |
Key Factors Affecting Your HELOC Payment
Several factors determine your HELOC payment amount:
- The Prime Rate: Most HELOCs are tied to the U.S. Prime Rate. When the Federal Reserve raises interest rates, your HELOC payment will likely increase.
- The Margin: Lenders add a "margin" (e.g., 1% or 2%) to the Prime Rate based on your credit score. Better credit scores typically get lower margins.
- LTV Ratio: Your Loan-to-Value ratio determines how much you can borrow. Most lenders allow you to borrow up to 85% of your home's value minus your first mortgage.
- Draw Period Length: Longer draw periods mean more time with low interest-only payments, but also more interest paid overall.
- Repayment Period Length: Longer repayment periods mean lower monthly payments but more total interest paid over time.
Understanding the Payment Shock
The "payment shock" occurs at the end of the draw period when you transition from interest-only payments to fully amortized payments. This can cause your monthly payment to double or even triple instantly.
Example: If you have a $100,000 HELOC at 7% interest:
- During the draw period: You pay approximately $583/month (interest-only)
- During the repayment period: You pay approximately $775/month (principal + interest over 20 years)
- Payment shock: $192/month increase (33% increase)
Our calculator helps you visualize this jump so you can prepare financially and avoid surprises.
Interest-Only vs. Principal Payments During Draw Period
During the draw period, most HELOCs only require interest-only payments. However, you can choose to pay principal:
- Interest-Only Payments: Lower monthly payments, but balance remains the same. You'll pay more interest overall and face a larger payment shock.
- Principal Payments: Higher monthly payments during draw period, but lower balance at repayment start. This reduces total interest paid and minimizes payment shock.
Strategy: If you can afford it, making principal payments during the draw period can save thousands in interest and make the repayment period more manageable.
Variable Rate Considerations
HELOCs typically have variable interest rates tied to the Prime Rate, which means your payments can change:
- Rate Increases: When the Fed raises rates, your HELOC payment increases immediately. A 1% rate increase on a $100,000 balance adds approximately $83/month to your payment.
- Rate Decreases: When rates fall, your payment decreases, but this is less common in rising rate environments.
- Fixed-Rate Lock: Some lenders offer a "Fixed-Rate Lock" option that converts a portion of your balance to a fixed rate. This protects you from rate increases but typically comes with a higher rate.
Always budget for potential rate increases when planning your HELOC payments.
When to Use a HELOC
HELOCs are ideal for certain situations:
- Home Renovations: Perfect for ongoing projects where costs are spread over time.
- Debt Consolidation: Can help consolidate high-interest credit card debt at lower rates.
- Emergency Fund: Acts as a backup line of credit for unexpected expenses.
- Investment Opportunities: Can provide quick access to capital for time-sensitive investments.
Warning: HELOCs use your home as collateral. If you can't make payments, you risk foreclosure. Only borrow what you can afford to repay.
Real-World HELOC Examples
Here are realistic scenarios showing how HELOC payments work:
- Scenario 1 - $50,000 HELOC, 7% Rate: Draw period payment: $292/month (interest-only). Repayment period: $388/month over 20 years. Payment shock: $96/month (33% increase).
- Scenario 2 - $100,000 HELOC, 8% Rate: Draw period payment: $667/month (interest-only). Repayment period: $836/month over 20 years. Payment shock: $169/month (25% increase).
- Scenario 3 - $150,000 HELOC, 6.5% Rate: Draw period payment: $813/month (interest-only). Repayment period: $1,119/month over 20 years. Payment shock: $306/month (38% increase).
Tips for Managing Your HELOC
Use these strategies to manage your HELOC effectively:
- Pay Principal During Draw Period: Even small principal payments can significantly reduce your repayment period balance.
- Budget for Payment Shock: Start setting aside the difference between your interest-only payment and expected repayment payment before the transition.
- Monitor Interest Rates: Keep an eye on the Prime Rate and Federal Reserve announcements to anticipate payment changes.
- Consider Refinancing: If rates drop significantly, you might be able to refinance to a lower rate or convert to a fixed-rate home equity loan.
- Don't Max Out Your Credit Line: Keep some available credit for emergencies and to maintain flexibility.
Frequently Asked Questions
Q:Can I pay principal during the draw period?
Yes. While most HELOCs only require interest payments, you can choose to pay down principal during the draw period. This will lower your balance at the start of the repayment period, reducing both your monthly payment and total interest paid over the life of the HELOC.
Q:What happens if interest rates rise?
Since HELOCs have variable rates tied to the Prime Rate, your monthly payment will increase when rates rise. A 1% increase in your interest rate adds approximately $83/month per $100,000 borrowed. If you're worried about rising rates, ask your lender about a 'Fixed-Rate Lock' option for specific portions of your balance.
Q:What is the 'Payment Shock'?
Payment shock occurs at the end of the draw period when you transition from interest-only payments to fully amortized payments (principal + interest). Your monthly payment can double or even triple instantly. For example, a $100,000 HELOC at 7% might have a $583/month interest-only payment during the draw period, but jump to $775/month during repayment—a 33% increase.
Q:How long is the typical HELOC draw period?
Most HELOCs have a 10-year draw period, during which you can withdraw funds and typically only need to make interest-only payments. After the draw period ends, you enter the repayment period (usually 20 years) where you must pay back principal plus interest.
Q:Can I extend my HELOC draw period?
Some lenders may allow you to extend the draw period, but this is not common. Typically, you'll need to refinance the HELOC or convert it to a fixed-rate home equity loan. Always check with your lender about your specific options.
Q:What happens if I can't make my HELOC payments?
HELOCs are secured by your home, so missing payments can lead to foreclosure. If you're struggling to make payments, contact your lender immediately to discuss options such as loan modification, payment plans, or refinancing. Don't wait until you're in default.
Q:Is HELOC interest tax-deductible?
HELOC interest may be tax-deductible if you use the funds to buy, build, or substantially improve your home. However, tax laws change frequently, and there are limits on mortgage interest deductions. Consult with a tax professional regarding the current 2026 tax codes and your specific situation.
Q:What's the difference between HELOC and a home equity loan?
A HELOC is a revolving line of credit (like a credit card) with variable rates and flexible borrowing. A home equity loan is a lump-sum loan with fixed rates and fixed monthly payments. HELOCs offer more flexibility but less predictability, while home equity loans offer stability but less flexibility.
Q:How much can I borrow with a HELOC?
Most lenders allow you to borrow up to 85% of your home's appraised value, minus your first mortgage balance. For example, if your home is worth $500,000 and you owe $300,000 on your first mortgage, you might be able to borrow up to $125,000 (85% of $500,000 = $425,000, minus $300,000 = $125,000).
Q:Can I convert my HELOC to a fixed-rate loan?
Many lenders offer a 'Fixed-Rate Lock' option that allows you to convert a portion of your HELOC balance to a fixed rate. This protects you from rate increases but typically comes with a higher interest rate than the variable rate. Some lenders also allow you to convert the entire HELOC to a fixed-rate home equity loan.